Economic Heat Map 04-24-2007

On the most fundamental level, trading currencies is about matching strong currencies with weak currencies. The heat map (updated on a weekly basis) is designed to offer a graphical depiction of how countries / currencies are performing relative to one other. However we all know that fundamentals are not the only thing that moves the market, yet knowing which country is getting weaker / stronger will help you make more prudent trading decisions.

[B]US Dollar

  • Relatively Unchanged, Dollar Remains Weaker[/B]
    Nothing has really changed for the US dollar. As a result, major currencies continue to gain against the greenback, most notably the euro and the pound sterling. On the economic front, other than figures from last week’s evaluation, it seems that lower consumer confidence is being mitigated by a record breaking advance by the Dow Jones Industrial Average. The index has advanced higher by almost 4 percent since the beginning of the year as earnings season reflect positive results for American companies. However, the overriding sentiment continues to prevail: Fed policy makers will continue to remain flat on interest rates. Until economic data turns overwhelmingly positive, many in the market continue to see policy makers staying pat on rates, lending to further dollar weakness in the near term. The situation could be exacerbated ahead of this week’s gross domestic product figure, which is expected to print a 1.8 percent rate of growth. Any lower, and it could be a long end of the month for the US currency.
    British Pound
    - Breaking Above $2, Will Pound Continue Higher?
    Our economic heat map continues to favor pounds as economic reports reflect a rate hike friendly environment. Already pricing in an upcoming rate hike in the month of May, the market continues to look forward to another 25 basis points shortly after. The notion has helped the pound sterling to consolidate at the $2.0000 figure, where it currently trades. However, notably, the notion did receive a bit of a jolt as the Monetary Policy Committee testified that inflationary pressures are expected to decline in the near term. But, with plenty of rate advantage against the US dollar, and subsequently the Japanese yen, there still remains plenty of upside in the underlying currency. Incidentally, the last area of weakness could be reversed as the UK is set for their GDP release this week. Should the report turn positive, it’ll be all green for sterling bidders.
    [B]Commodity Currencies
  • Canadian Dollar Coming Into The Picture[/B]
    With both the Australian and New Zealand dollars under pressure from carry trade flow, it was the Canadian dollar that remains on the bidside from the Comm-dollars. Economic figures have been widely positive for the currency, helping the underlying spot to trade through not only the 1.1400 figure, but the 1.1300 figure as well. Notably attributed to recent strength, the Bank of Canada reversed its current assessment, noting that inflationary pressures from food and gasoline may damage its previous evaluation. The statements, released shortly after the decision to keep the country’s main rate at 4.25 percent for the seventh meeting, have sparked speculation that rates may in fact rise in the near future, boosting the carry advantage. Reflective of the recent spate of positive economic data, the decision and following sentiment is likely to add to further Canadian dollar strength in the near term, as our heat map suggests.